Bargaining During Lean Economic Times: The Duty to Meet and Confer

California's struggling economy has severely impacted public sector employers. While hints of an economic recovery may be beginning to show, a full recovery is expected to take some time.[1] The economy has forced public agencies to enact, or at least consider, drastic economic measures such as lay-offs and furloughs, as well as other cost-effective ways of providing public services in the face of quickly dwindling resources. Such measures may allow public agencies to minimize the future impact of the economic downturn, avoid the loss of additional jobs, and avoid the reduction of work hours for employees – but public employers must beware. Before implementing layoffs, furloughs and other cost-cutting measures that may affect represented employees, public sector employers must make sure that they comply with applicable bargaining requirements, including the duty to meet and confer.

Meet-And-Confer Requirements

The Meyers-Milias-Brown Act ("MMBA"), Government Code §3500, et seq., generally requires cities, counties and other covered agencies to meet and confer in good faith with recognized employee organizations "regarding wages, hours, and other terms and conditions of employment."[2] "Meet and confer in good faith" means that a public agency and union representatives have the mutual obligation to meet and confer promptly upon request by either party and must attempt to reach an agreement on matters that affect wages, hours and terms and conditions of employment. Agencies typically are not obligated to negotiate, however, over subjects that fall outside the scope of bargaining such as the consideration of merits, necessity, or organization of any service or activity provided by law or executive order.[3]

During this time of serious budget crunches, public sector employers must understand the circumstances under which they can act unilaterally to take cost-cutting measures and when they must meet and confer with affected employee organizations. This article will review the most common types of cost-cutting measures, the meet-and-confer obligations that typically arise in connection with each, and steps to cost-effective labor negotiations during lean economic times.

1. Layoffs

Typically, an agency's decision to lay off employees based on economic considerations is a managerial or policy decision that is not negotiable.[4] The seminal case of Building Material & Construction Teamsters' Union v. Farrell,[5] held that only the effects of the decision to layoff, and not the decision itself, fall within the scope of representation. This general rule is consistent with state and federal precedent establishing that an employer may exercise its managerial prerogative to eliminate or reduce services and lay off employees "free from the constraints of the bargaining process."[6] In First National Maintenance Corp. v. NLRB,[7] the U.S. Supreme Court considered whether an employer's economically motivated decision to close part of its business and lay off employees was negotiable. The court held that the decision to lay off was not subject to bargaining because it involved the scope and direction of an enterprise and therefore constituted a fundamental management right.

In contrast, issues relating to the effects of layoff are negotiable. These issues may include the notice and timing of layoffs, and the number or identity of the employees affected.[8] An employer is also required to bargain over positions that are reorganized or reclassified as a result of a layoff, and the effect on the workload and safety of the remaining workers.[9]

Public agencies also should be aware that layoffs can arguably result in due process implications that may inadvertently affect budgeting for layoffs. In Levine v. City of Alameda,[10] the 9th Circuit held that public employees who are laid off may be entitled to hearings before and after their separations. In Levine, the affected employee argued that his layoff was merely a pretext and that he was actually laid off because the city manager did not like him. The Levine decision does not draw a distinction between a legitimate layoff for budgetary or reorganization reasons and a layoff that is arguably pretextual in that it is based upon other reasons (e.g. cause, discrimination, etc.). The Levine decision, at the least, must be considered by any public agency that is considering a layoff as it may be argued that laid off employees are entitled to pre- and post-deprivation hearings. Accordingly, public agencies should consider implementing layoff procedures that include an administrative process for handling challenges to the layoff, as well as challenges to effects of the layoff such as the order of layoffs, bumping rights, etc. Challenges to layoff decisions are inevitable, but a clear and detailed process for such challenges allows for the agency to avoid inadvertent expenditure of time and expense.

2. The "Golden Handshake"

Because laying off employees can be an agonizing process, public employers often look for alternatives that will nevertheless reduce the workforce. One method to accomplish this goal is to offer an early retirement incentive, also known as a "golden handshake." Typically, retirement benefits provided under the Public Employees' Retirement System ("PERS") are a function of four factors: applicable retirement formula, age at retirement, service credit and final compensation.

Although there is no explicit authority discussing the meet-and-confer requirements for early retirement, because the golden handshake affects the conditions of employment and employee benefits, employers and employers would need to meet and confer to implement such provisions.

3. Furloughs

As with early retirement, neither the courts nor public sector administrative agencies have specifically held that furlough decisions must be negotiated. However, the Public Employment Relations Board ("PERB") recognizes a critical distinction between a layoff decision and a decision to implement an involuntary reduction in hours.[11] PERB explains that layoffs suspend the employment relationship entirely, while a reduction of hours "maintains the relationship but alters some of its terms."[12] Accordingly, while a decision to implement layoffs need not be bargained, an employer must meet and confer for a reduction in hours as an alternative to layoffs.[13]

For example, in Oakland Unified School District[14] the school district reduced 150 custodial positions from a 12-month work year to a 10-month work year. Because the reduction was taken in lieu of a layoff, PERB found that the act was within the scope of representation. In reaching this finding, PERB explained that "we agree that an employer may unilaterally reduce the employees' work year by means of a layoff and, at the same time, establish a reinstatement date two months hence. Here, however, such was not the case. In the instant case, the District reduced the work year of its custodial employees as an alternative to the layoff of an additional 40 custodians, and not as a layoff itself."[15]

PERB's recognition of the distinction between a layoff and an involuntary reduction in hours affecting individuals who continue in their employment is consistent with the recent decision in International Association of Firefighters, Local 188 v. Public Employment Relations Board.[16] In that case, the court of appeal agreed with PERB that the City of Richmond's decision to lay off firefighters was not subject to collective bargaining under the MMBA because "collective bargaining rights attach only after the workforce is reduced." The court of appeal also said the duty to meet and confer arises over the effects that the non-negotiable layoff decision may have on the employment conditions of "remaining employees."[17] Petition for review of the International Association case has been granted, and the matter will be taken before the California Supreme Court.[18]

Exceptions to the Meet-and-Confer Process

Even where meet-and-confer obligations attach to cost-cutting measures, such as furloughs, or the effects of layoffs, there are some exceptions to the general rule requiring employers and recognized labor organizations to meet and confer. Those exceptions include waiver, necessity, bankruptcy, and impasse.

1.Waiver

Waiver usually may be achieved by two means: (1) explicit contractual language that waives the right to bargain over a particular issue, or (2) the failure to request negotiations despite notice and a reasonable opportunity to negotiate before implementation of the change. Explicit contractual language that waives the right to bargain usually takes the form of a "management rights" clause contained in a bargaining agreement or memorandum of understanding. However, courts generally require the wording of a "management rights" clause to be very clear and specific before determining that a waiver of the obligation to meet and confer has occurred. For example, in Independent Union of Public Service Employees v. County of Sacramento,[19] PERB found that although managerial rights clauses gave the county "the exclusive right to … assign its employees," the county could not unilaterally change shift assignments because the language did not constitute a "clear and unmistakable relinquishment" of the union's right to bargain in that area.[20] An employee organization also waives its right to bargain when it fails to request negotiations after receiving written notice and following a reasonable opportunity to meet and confer before the intended action is taken.

For obvious reasons, waiver – and ultimately avoiding the costs associated with the meet-and-confer process – can provide significant benefits to employers. However, waiver is an exception that is relatively rare.

2.Necessity

In order to qualify under the necessity exception to meet and confer, an employer must have an actual business necessity or "an actual financial emergency which leaves no real alternative to the action taken and allows no time for meaningful negotiations before taking action."[21] An employer's justification, or financial insolvency, will be heavily scrutinized to determine whether the decision was warranted or whether there were other, more reasonable, actions that could have been taken. In other words, the necessity exception to the meet-and-confer process is a narrow, if rarely used, exception.

For example, in Sonoma County Organization of Public Employees v. County of Sonoma, the California Supreme Court opined that contractual commitments can only be deferred if the fiscal emergency is so catastrophic that the agency would have to stop operations if the crisis weren't resolved.[22] In reaching its decision, the Court found that when the county's revenues were reduced by 6 percent, a declaration of fiscal emergency was not appropriate.[23] In light of this, before opting to forgo the meet-and-confer process on the basis of financial necessity, employers must carefully assess whether there is a true fiscal emergency – or risk the potential for litigation or an unfair practices charge.

3.Bankruptcy*

Tied in with the fiscal emergency or necessity is bankruptcy. Typically, a municipality filing for Chapter 9 bankruptcy protection may be permitted to reject collective bargaining agreements,[24] and, in turn, the duty to meet and confer. For example, in 2009, theCity of Vallejo filed for Chapter 9 bankruptcy.[25] After filing for bankruptcy, the city filed a motion to reject its collective bargaining agreements with unions representing the public employees of Vallejo.[26] The court found that any state labor law or enacted law was preempted by the federal bankruptcy code, and that California labor law protections were inapplicable to public employees whose municipalities were filing for bankruptcy.[27] The City of Vallejo case holding remains good precedent and is probably one of the most significant decisions for public sector employers undergoing dire financial hardship.

If an employer can qualify for bankruptcy, Chapter 9 protection will allow the employer to discard its contracts and debts, and the meet-and-confer process altogether, thereby saving the employer from expending resources associated with the meet-and-confer process. This, as with the necessity exception, requires a strong showing of severe financial hardship or insolvency and should be carefully evaluated.

*Pending legislation, Assembly Bill (AB) 155, would require local governments to receive state approval prior to filing for federal bankruptcy relief. Generally, the passage of AB 155 would make it more difficult for local agencies to declare bankruptcy.

4.Impasse

The fourth exception to the general requirement to meet and confer is through impasse. Impasse is the point in negotiations at which one or both parties determine that no further progress can be made toward reaching an agreement. Under the impasse procedure, an employer may unilaterally enact changes to working conditions if it negotiates in good faith, the parties reach a valid impasse, and the employer exhausts its impasse procedure obligations in good faith.[28] Of course, this procedure also requires that there is no contractual exclusion, such as a "zipper clause" or maintenance-of-benefit provision, regarding the change during the term of the memorandum of understanding.

While impasse has the potential to reduce costs, because it comes into play only after the meet-and-confer process is well underway, the savings are likely minimal.

Preparation is essential for success in any process. It is important to establish goals and determine who, within any given agency, should prepare for negotiations. The overall objective of any downsizing program, or the implementation of furloughs, is to continue to deliver the maximum level and quality of services at a lowered cost that does not exceed projected revenues. Secondarily, it is important to determine whether the agency seeks permanent change versus temporary relief. In other words, should the objective of a downsizing program be to adjust to a permanent restructuring of local governmental financing, or is the objective to reduce expenses over the next fiscal year or two? The approach, and which alternative downsizing actions will be selected, will be influenced by the answer to that question.

A longer term objective argues for a more selective approach. Initially, an inventory should be prepared with a breakdown of all pertinent costs. The legislative body must prioritize the costs and ensure that long-term expenditure estimates are brought into line with long-term revenue projections. Appropriate type and number of staff can then be determined. A program designed to serve long-term objectives may call for downsizing actions that have a permanent effect and allow maximum selectivity, such as hiring freezes and attrition, inducements for early retirements and resignations, targeted layoffs, transfers and retraining.

On the other hand, if the objective is shorter-term financial relief, the employer might look to a variety of actions that have a temporary impact on a broader cross-section of employees, such as unpaid leave (furloughs), deferral of various benefits, and temporary hiring freezes.

Another key component of preparing for success is to determine who should prepare for negotiations keeping the above objectives in mind. The negotiations team may include a chief negotiator, legal counsel, public officials, chief administrative officers, human resources director and staff, and perhaps agency operating managers. Others who will need to prepare include supervisors and managers. These individuals will need to prepare by assessing finances or the fiscal goal, evaluating legal issues, grievances and other contract issues, and taking salary surveys, among other things.

2. Understand the budget and total labor costs

It is also essential to know and understand your total costs. Salaries are only one part of overall labor costs. Before negotiating, an agency must consider retiree benefits/costs, insurance costs, overtime costs, incentive pay, and turnover. In order to truly know the budget, the negotiations team must understand all of the agency's revenue sources, the agency's revenue projections, and the agency's expenditures. A flat or declining revenue projection will undoubtedly impact the negotiations strategy.

Also consider other ways to increase revenue and/or reduce overhead. Some cost-cutting measures might include locating increased sources of revenue, implementing tighter controls on reimbursable expenses, delaying implementation of projects, implementing practices for reducing use of utilities, and expanding existing programs (i.e. alternate workweek/scheduling options, expansion of job-share programs). This may include investigating and responding to unnecessary or excessive spending practices, and reviewing those options with middle-management.

3. Know your options

Before entering negotiations, it is important to review all potentially applicable agency procedures and practices, including personnel rules, collective bargaining agreements, or departmental rules.

It is also important to reassess available options. For example, consider whether there is "zipper clause." A "zipper clause" implemented in any given contract can "zip up" the contract by stating that the agreement reflects all understandings of the parties. In good times, a zipper clause may allow the agency to reject the union's request to negotiate. On the other hand, in bad times, a zipper clause can stop the agency from negotiating for a thing that it needs – such as salary cuts.

Another potential example is the maintenance-of-benefits clause. Benefits clauses typically state that all benefits employees currently receive, which are not specifically provided for in the agreement, must remain in effect for the duration of the agreement. This may keep cash-strapped agencies from reducing benefits and, in turn, reduce flexibility.

Agencies preparing to negotiate should also keep re-openers in mind, if those are a part of the agreement. A re-opener is a general name for a clause in an agreement allowing either party to reopen the negotiations. The re-opener can encompass specific issues or all issues and can be implemented at any time or at a set time, depending on the language of the contract. If this option is available, it will provide agencies with more flexibility in the course of negotiations.

4. Don't overreach

While the meet-and-confer process is a great opportunity to achieve cost savings, aggressiveness must be balanced with diplomacy. Overreaching can stall negotiations and hurt the agency in negotiating future contracts.

5. Understand impasse resolution procedures

Most agencies have their own impasse resolution procedures established. Some impasse resolution procedures include mediation, fact finding, and interest arbitration. Understanding the impasse procedure, and the implication of the applicable procedure, is critical to cost-effective negotiations.

Conclusion

There are no easy solutions to cutting costs, particularly with respect to the meet-and-confer process. Likewise, there is no one-size-fits-all solution that will apply to all public employers, each with its own unique set of circumstances. Remember that the meet-and-confer process – whether regarding layoffs, the "golden handshake," or furloughs – is almost always required. There are only a narrow set of circumstances when meet and confer is not required. Unions and employers should keep their goals in mind. Taking appropriate action now can reduce the chance that more drastic measures will need to be taken in the future.

*Mark Meyerhoff is a partner and Camille Y. Townsend an associate in Liebert Cassidy Whitmore's Los Angeles office. The firm, which maintains offices in Los Angeles, Fresno, and San Francisco, represents public and private sector management in all aspects of labor and employment law, including labor relations, civil litigation, and education law.